Relevant and even prescient commentary on news, politics and the economy.

Congress whittles many beaks

by ilsm

If the war machine were not for the jobs and the PAC’s it may be more useful than whittled beaks.

New England politicians saved jobs, diverted funds from better uses, many outside the military industrial complex. The Navy will build a third Zumwalt class destroyer. The Navy does not need a destroyer which is too small for the radars needed for fleet air and missile defense and which cannot fulfill the anti submarine roles either. The Navy, to their credit, had wanted to use the money to build a larger more versatile existing class of ship which could do the missions.

Boston Globe, August 20, 2008: Lawmakers’ Influence Felt In Destroyer Decision Critics call reversal a make-work program.
By Bryan Bender, Globe Staff

“We saw it with the B-1 bomber, we saw that with the Seawolf submarine,” said Winslow Wheeler, a former Republican congressional aide who has become a vocal critic of the defense budget process. “This shows the depths to which Congress has sunk. It has become bipartisan to see the defense budget as a jobs programs. They see it as key to their own political survival. So the nation is to pay for overpriced, ineffective weapons because it helps a politician stay in office.”
“According to Loren Thompson, a defense analyst at the Lexington Institute, an Arlington, Va., think tank, the project would be headed toward extinction if not for powerful New England politicians.”

So many beaks are whittled for the congress?

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Distributional Differences Between McCain’s v. Obama’s Tax Proposals: Charles Barkley is a Lot Smarter than Wolf Blitzer

ThinkProgress shows the Wolf interviewing Charles Barkley:

In an interview with former NBA star Charles Barkley today, CNN host Wolf Blitzer discussed the respective tax plans being offered by Sens. Barack Obama and John McCain. This is the on-screen graphic that CNN displayed during the interview, which the network represented as the “average tax bill change”

CNN graphic shows that if you make more than $160,000 a year, the McCain tax proposal gives you a lower tax bill than Obama’s proposal. For the other 95% of the US population, one has to turn to the analysis provided by ThinkProgress. While Charles Barkley was a great basketball player, I have no clue why CNN thought he was some sort of expert on this issue. But even he knew CNN’s graphic was addressing only the impact on the very rich:

Well, I think that if you’re rich — I thank God I’ve been very successful — if you’re rich, you’re always going to be rich. If we pay more in taxes, I got no problem with that. If you’re making that kind of money, a couple hundred thousand dollars here or there are not going to change your life. Let’s be realistic. I’ve been very fortunate and blessed. I did a great job of saving my money. But I got no problem if I’m making that type of money, paying more in taxes to be honest with you.

I think this is where Brad DeLong would plea for a better press corps. Maybe CNN should fire the Wolf and hire Charles Barkley.

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Dep’t of Man Bites Dog: Tax Foundation Working Paper is More Honest than Tax Foundation News Release

In honor of Economy Day at the DNC, the Tax Foundation sent me an e-mail trying to convince me that the corporate income tax is terribly unfair to average Americans. The pitch is based on a tax incidence study that claims that in the lower quintile of cash incomes, personal income taxes averaged $171 in 2004, whereas the effective bite of corporate income taxes was $271. Including payroll and excise taxes, they figure that the bottom 20 percent paid on average $1,684. All other figures in the post are from the Tax Foundation.

As an aside, at least the estate tax burden for the bottom quintile was estimated to be $0. For the second quintile, the estate tax burden was $0. At the median, the burden was $0. In the fourth quintile (i.e. up to the 80th income percentile), the average estate tax burden, according to the Tax Foundation, was $0. By advanced mathematics, the maximum estate tax burden for the bottom 80% of the U.S. income distribution was — you guessed it — $0. That goes to show the power of marketing.

Before you start wringing your hands about the corporate income tax shafting the poor, a working paper [PDF] that serves as the source of the statistics is honest enough to note that the net fiscal incidence is the difference between government spending and tax payments. The news item only gives the payment side, but the paper actually provides the benefits and allows calculation of the net incidence.

It turns out that by the Tax Foundation economists’ calculations, that diabolical tax system took that $1,684 only to return $24,860 in spending to bottom-quintile earners, including expenditures on what the authors tally as public goods. Average net benefits don’t turn negative until the fourth income quintile, and the top quintile, with the largest net “burden,” faced an effective total (average) tax rate of 34.55 percent (24.25% federal). That includes income, payroll, excise, property, and estate taxes at all levels, again in the account the Tax Foundation is peddling.

Some of you may think that’s unconscionable confiscation, but I prefer to think of the working well-to-do and the rich as having a glass that’s right around 2/3 full. And even without being anywhere close to the nosebleed sections of the distribution, I can tell you that if you take the pessimistic view of the tax incidence on the well-to-do and aren’t in the top fifth, I’m not trading places to free myself of that “burden.” Just saying.

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Static News

Listen to Static News on internet talk radio

Billy asked me as a point of interest to alert people to the show for Millenium age voters. He is pro McCain, but his partner on air Stephen is pro-Obama. It is intended to be educational but not neutral as in a classroom. I shall be watching sometimes to see how they do. (Bios on the site)

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Simple Answers to Stupid Questions (Obama and Infrastructure Edition)

Stephen Karlson, who must have eaten some bad clams or something, points to a bit of infrastructure frothing-at-the-mouth from greater Wingnuttia. Dan Riehl found Obama saying this at a campaign appearance:

“Their ports, their train systems, their airports are vastly superior to us now, which means if you are a corporation deciding where to do business you’re starting to think, “Beijing looks like a pretty good option. Why aren’t we doing the same thing?”

Riehl asks:

Did Obama Just Lose The Election?


He writes:

Obama is either incredibly naive, terribly misinformed, a communist, just flat out dumb or all of the above to be caught on tape making a statement like that.

Contrast George W. Bush, caught on a government website saying:

My view of China is, is that it’s a great nation that’s growing like mad.

So IOKIYAR. Bonus from the same (April 2005) appearance:

I will tell you with $55 oil we don’t need incentives to oil and gas companies to explore. There are plenty of incentives. What we need is to put a strategy in place that will help this country over time become less dependent.

At that point, Bush had only about 18 months of single-party rule to put a strategy in place. “Drill here and drill now” Republicans are clearly just covering up for their own lack of action when it was obvious more than three years ago that action was needed!

Meanwhile, Possession of “listening comprehension” makes it obvious that the antecedent of Obama’s “same thing” is “investing massively in infrastructure.” Now, lots of China’s infrastructure actually is not so advanced, as Karlson tells the rail-minded and some of Riehl’s commenters state more plainly. However, China is still developing, is poor on average, and dirt poor where it’s poor. The U.S. is advanced, rich on average (by global standards), and extremely rich where it’s rich. So if we’re going to use China as a yardstick for our accomplishments, it should be China at its most advanced, not its least. There, but for our own fecklessness and lack of thrift, we should be able to go.

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No laboring in economics

by: Divorced one like Bush
at the beach on vacation Ha!

Gee the economics profession is ignoring labor. I wonder why. Could it be who we follow? It’s not like we don’t quote old Adam often. Free market and ghost hand ideas are mentioned all the time as we follow Milton:

According to The Economist, Friedman “was the most influential economist of the second half of the 20th century…possibly of all of it”.[2] Former Federal Reserve Board chairman Alan Greenspan stated, “There are very few people over the generations who have ideas that are sufficiently original to materially alter the direction of civilization. Milton is one of those very few people.”[3]

I would add, a mind who focused on….wait for it…. MONEY.
“Monetarism is a school of economic thought concerning the determination of national income and monetary economics. It focuses on the supply of money in an economy as the primary means by which the rate of inflation is determined.”

In an interview at Right Wing News by John Hawkins (sorry no date)of The Man who is introduced thusly:

But I think the fact that Mr. Friedman finished in a tie for the 15 slot when RWN had conservative bloggers select, “The Greatest Figures Of The 20th Century” gives you some idea of Mr. Friedman’s stature.

we get responses to the questions by Mr Influence of the 20th century of:

From my point of view, we in the United States have gone overboard in respect to the extent of regulation and detailed control of labor standards, industry, and the like. It’s bad for us, but fortunately we had two hundred years of relatively free development to provide a strong basis to sustain the cost.

Well, they only consider half of the problem. If you move jobs overseas, it creates incomes and dollars overseas. What do they do with that dollar income? Sooner or later it will be used to purchase US goods and that produces jobs in the United States.

If the White House were under Bush, and House and Senate were under the Democrats, I do not believe there would be much spending.

How do you get them together by forming industrial cartels and keeping prices and wages up? That’s what Roosevelt’s policies in the New Deal amounted to. Essentially, increasing the role of government, enhancing the monopolistic position of labor, and creating as I said before the equivalent of price fixing cartels made things worse.

Well, who would provide the funds, the capital, and the entrepreneurship for the new industries? In a world in which there were no rich people, how would you have ever gotten the capital to produce steel mills or automobile plants? You can do it through the state, but the world tried that with the Soviet Union.

Well, Social Security is having a bad effect now through the tax system.

So we have a profession which followed a man whose focus was minimally on labor and by the above quotes maybe even condescending to labor as a factor in economics and wonder why the profession of this man has de-emphasized the subject? HELLO!!!!!!!!!!!!!!!!!!!

Maybe the profession really only needs to follow one piece of advice from Mr. Milton:

John Hawkins: Are there any political websites you’d like to recommend to our readers?

Milton Friedman: No, I don’t really follow any political websites. I think they’ll do better reading theWealth of Nations (laughs)…

Ok, lets read the words of the originator of the ghost hand theory:

“Every man is rich or poor according to the degree in which he can afford to enjoy the necessaries, conveniencies, and amusements of human life. But after the division of labour has once thoroughly taken place, it is but a very small part of these with which a man’s own labour can supply him. The far greater part of them he must derive from the labour of other people, and he must be rich or poor according to the quantity of that labour which he can command, or which he can afford to purchase. The value of any commodity, therefore, to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of the exchangeable value of all commodities. The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it.”[3]

If you will allow me, let’s put a picture to Mr Smith’s concept as it relates to why the economics profession needs to follow this one piece of Mr Influence’s advice.

Then there is this. And this as to why the economic profession needs to study this. Of course if the profession would just think about how the majority (like super duper majority) acquire their money, then maybe they would have not passed on this currently wide open, you can own it, make a name for your self aspect of money making.

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Social Security: Having $5 Trillion in the Bank is Being Broke?

Is the Washington Post trying to rival the National Review?

Mr. Obama’s tax increase would not take effect until 2018 — yes, after both terms of an Obama presidency. One argument for this delay is that raising Social Security taxes now would just allow lawmakers to spend more of the existing surplus on other things; it’s not until 2018 that the income from payroll taxes would fall short of paying promised benefits. But surely President Obama could find some way to bring in money sooner without letting Congress fritter it away on other needs.

I know that the Federal government has seen its total Federal debt rise relative to GDP and has a rather large general fund deficit but how on earth does this place the Social Security Trust Fund on the edge of bankruptcy. Let’s turn the microphone over to Dean Baker:

The Post is complaining yet again that politicians are unwilling to deal with a Social Security shortfall that is first projected to hit in 2049, when John McCain will be 113 years old. To try to makes it case sound more compelling it refers to the date 2018 when the Social Security trustees project that tax revenues will first be inadequate to meet benefit payments. Of course 2018 is completely irrelevant to the finances of the program. At that point the program is projected to have accumulated more than $5 trillion in government bonds. But the Post wants to scare readers to advance their Social Security agenda so they trot out 2018 as though it is a date that anyone needs to worry about.

Gee – the Trust Fund will have $5 trillion in bonds earning interest. If the interest rate is 5 percent – then the fund will have $250 billion in interest income so the fund will likely continue to accumulate assets even in 2018 or 2019 as the difference between payouts and payroll contributions will be less than its interest income. That the Trust Fund is in crisis is almost as stupid as this:

Are the Denver Dems downing the stock market today? The Dow is off 230 points, starting right from the get-go.

Stock market prices fell during the day while those speeches were at night. Not only is Larry preaching Pre Hoc Ergo Propter Hoc nonsense, there was no real news in any of those speeches last night. Steve Benen has more on Kudlow the Klown.

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Economic theory and workers

Michael Perelman at Econospeak and here has thoughts on the role of the worker in economic theory I found interesting.

An August 8, 2008 search of 73 economics journals collected electronically in the JSTOR database revealed how marginal work, workers, and working conditions has become in economic literature. Of the articles published since January 2004, the term “working conditions” appeared in only 12, not counting four more substantial articles in the Review of African Political Economy, a journal rarely cited by mainstream economists. Of the remaining articles, three concerned the problem of retention of teachers. Another had a footnote that observed that people can learn about working conditions from websites. One article noted that faculty members in colleges and universities join unions to improve working conditions. A book review considered whether globalization could improve working conditions. Two articles mentioned legislation that took working conditions into account. One article disputed that child labor abroad experienced hideous working conditions. Another cited a mid-nineteenth century British economist who said that factory working conditions were good.
At the same time as questions of labor were disappearing, economics began to elevate the status of investors’ financial claims, insisting that owners of this form of property had rights equal to those of owners of real goods, such as land or factories. Even something as ephemeral as “good will” became recognized as property.

Peter Dorman at Econospeak added his thoughts on child labor, and has published Markets and Mortality.

It is inherent in our trade agreements (WTO, bi-lateral and regional, and internal) so much so that few people in general think it is missing. The best retort in comments at Econospeak had to invoke contract law as the contradiction to the thesis.

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New graphic data on taxes, growth, and revenues

(rdan here: I will put part of this post under the fold a little later in the day and delete this comment…I thought more would read it intact at first)

by cactus

This is a follow-up to a I wrote the other day, taking into account some very helpful suggestions from many helpful readers in comments. As noted in the earlier post, this material comes from a book I’m writing with a co-author, and which has benefited greatly from comments and suggestions by many people, including (if not especially) the crowd at Angry Bear.

Essentially, the point of this post is to look at tax rates and see how they affected economic growth (which I will measure as the growth in real GDP per capita) and tax receipts (which I will measure as real tax collections per capita).

Before I go on, one more thing… when I mean tax rates, I don’t marginal tax rates. I mean the actual tax rates, the percentage of income we actually pay in taxes. (I.e., income tax collections / total personal income.) I’m going to call that “Actual Personal Tax Rate.”

The Actual Personal Tax Rate is not a figure anyone ever talks about. Instead, people talk about marginal tax rates. There are a many problems with looking at the marginal rates, first among them that nobody pays the marginal rates. There are also many different marginal rates, there are tax avoidance mechanisms and schemes, and there is the little issue that some marginal rates are less likely to be paid than others. (I understand the Warren Buffet Challenge is still out there.)

But the biggest objection is this – why discuss some theoretical tax rate when we can discuss the amount that people actually pay? (Or don’t, for that matter. Remember – tax evaders are people who evade paying taxes, not who evade paying marginal taxes.)

The IRS provides data on total personal income tax paid as a percentage of the total personal income earned by people in the country. In other words, the data tells us the Actual Personal Income Tax Rate we collectively pay, as opposed to whatever it is we think we pay.

(BTW -links to all data, plus a spreadsheet with a copy of the data, will be provided at the bottom of this post. I would encourage readers to look at the data themselves.)

Let’s begin by taking a gander at what the Actual Personal Income Tax Rate looks like. For consistency with the rest of my book, I’ve broken the data up by presidential administrations. (JFK & LBJ are merged into one, as are Nixon & Ford.)

(Graph 1 of 6)

A few takeaways… First, since 1953, the actual personal income tax rate has never, repeat, never been above 11.6%. That’s right, 11.6% – and that rate was reached in the year 2000. Now, perhaps you, like me, know a bunch of people who say they pay half their income in taxes. Even after throwing in state, local, and Social Security taxes, its hard to reach such a figure. I can only imagine that some of those folks have succeeded in hiring the world’s worst tax accountant and aren’t smart enough to realize it, and the rest are simply massively delusional. (No doubt a few of them will provide comments to this post.)

Another takeaway – Democratic administrations tend to raise tax rates. Carter and Clinton produced year after year increases in actual personal income tax rates. The JFK/LBJ years show a big drop – that was 1964, but both before and after the 1964 drop, tax rates went in a single direction. Conversely, Republicans have been (not surprisingly) more the tax cutting types, especially since Nixon took office. (Note one interesting detail: after a few years in office, presidents Nixon, Reagan, and GW all tempered their original enthusiasm for slashing and burning, perhaps after some David Stockman in their midst managed to notice, as we will see later in this post, that tax cuts have very different effects than advertised.)

So how does the pattern we see emerge? For example – consider Bill Clinton. There weren’t any major changes in tax law until he cut the cap gains rate, but even that shows up only as a one time slowdown in the rate of tax increases. Conversely, George Herbert Walker Bush cut taxes, didn’t he? Well, didn’t he? Wasn’t that what the whole “read my lips” criticism was about?

Well, what causes actual tax rates to rise when Democrats are in office is… enforcement. Enforcement means not appointing people to the top tier of the IRS whose most fervent wish is to see tax rates reduced to zero, unlike many of the Grover Norquist and the frighteningly misnamed “Club for Growth” acolytes that show up when a Republican is President.

Now, the rest of this post is simple. I’m going to show four scatterplots:

1. the average actual personal tax rate in each administration versus the annualized growth in real GDP per capita over the length of that administration
2. the average actual personal tax rate in each administration versus the annualized growth (or shrinkage) in real tax collections per capita over the length of that administration
3. the change in the average actual personal tax rate in each administration versus the annualized growth in real GDP per capita over the length of that administration
4. the change in the average actual personal tax rate in each administration versus the annualized change in real tax collections per capita over the length of that administration

A few comments before going on. First, the figures for the change in average actual personal tax rate will be different than in my previous post. That is because in the previous post, I was looking at the annualized change in the actual rate, whereas this time around, I decided that since the tax rate was already in percentage terms, it made more change to simply look at the average yearly change.

That is, last time around, for, say, the Carter administration, I calculated the change in tax rates from the year before he took office (1976: 9.62%) to his last year in office (1980: 10.85%) as [(10.85 / 9.62) ^ (1/4)] -1, or 3.06%. The problem is, a number of people told me they found this to be confusing, so instead, I’m simply taking 10.85, subtracting 9.62, and dividing by 4. However, I am still annualizing the changes in real GDP per capita and real debt per capita, as those figures are in dollars, rather than percentages.

Here’s Scatterplot 1:

(Graph 2 of 6)

What does this graph fail to show? Well, it does not show that administrations with the highest tax rates produce the fastest growth. In fact, offhand it seems to show the exact opposite, even among Republican administrations. For example, the two fastest growing Republican administrations also had the highest actual personal tax rates.

Here’s Scatterplot 2:
(Graph 3 of 6)

If you can look at this and conclude that higher tax rates result in less real tax collections coming in, congratulations – there’s a volunteer job waiting for you in the McCain camp.

Here’s Scatterplot 3:

(Graph 4 of 6)

As we saw in Scatterplot 1, higher average tax rates don’t seem to produce slower growth. Not surprisingly, therefore, raising tax rates doesn’t do it either. Of the four administrations overseeing the fastest growth rates in real GDP per capita, only one (Reagan) cut tax rates. Of the five administrations overseeing the slowest growth rates in real GDP per capita, all five cut tax rates.

Here’s Scatterplot 4:
(Graph 5 of 6)

Here we see the nonexistence, if not the contradiction of the “raising taxes decreases tax receipts” storyline.

Since this post looks at the Republican claims about the effect of taxes on the economy, I should at least take a peak at the most up-to-date state of the art Republican claims, as put forward by the Republican standard bearer, John McCain. McCain tells us he will cut taxes, and that low taxes are the key to growth. He also tells us that Obama is for plenty of new taxes, and that these tax hikes are going to stifle the economy. So below is one more chart – its basically scatterplot 3 repeated, but this time I added in two shaded boxes. The first represents the area that a President Obama will fall into, according to McCain – tax hikes and slow growth. The second represents that a President McCain will fall into, according to McCain – tax cuts and rapid growth. Here’s the graph:

(Graph 6 of 6)

I’m not saying one of those two boxes ain’t gonna happen, but we have yet to see anyone fit into the Obama box, and Reagan is the only President so far in the red quadrant. I can understand McCain believing both boxes make sense – he’s got that rep for being mavericky and all. But what’s up with the Economists for McCain?

A few final points before I wrap this up:
Data for the actual tax rate is here.
Data for real gdp per capita and population is obtained from NIPA Table 7.1
Data for real tax collections comes from OMB Table 1.3.
I’ve also downloaded all the data and links into this Google Spreadsheet.

Many of the objections usually raised by those who don’t like the results have previously been disposed of, and a collection of the assorted disposals can be found here. I apologize for not having any way to access them selectively, at the moment.

Last thing: I know what a pain in the butt it is to upload these graphs into blogger, so I’m very grateful to Dan for putting up with a guest post with six of them!
by cactus

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There’s almost $200 lying on the street; WWTD?

Since I’m cash-strapped for the next few years, I’m looking for ways (legally, semi-legal, other) to make money.

Thank the L-rd for WaMu.

Let’s see: HELOC is at Prime – 0.76%, currently 4.24%. So I can:

  1. Take $25,000 from HELOC.
  2. Invest in FDIC-insured WaMu CD for 12 months at 5.00%.
  3. Profit until the fourth 0.25% rate hike, which should be at least a year.

Make $190, give or take, risk free if nothing changes.

Hmmm, maybe I should make that $50K. In the form of my new motto: WWTD? (What Would Tyler Do?)

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